This is a follow-up analysis of our prior report, “AUD/JPY Technical: Trump trade tariffs tantrum may spark a sell-off yen cross pairs” published on 26 November 2024.
Despite a slew of less dovish rhetoric speeches from Australia’s central bank (RBA) Governor Bullock and Deputy Governor Hauser warmed market participants to tone down the expectation of further interest rate cuts in 2025 after RBA enacted its first 25 basis points cut in four years to reduce the cash policy rate to 4.1% on last Tuesday, 18 February, the AUD/USD has failed to kickstart a bullish momentum run.
On the contrary, the Aussie dollar could not maintain its earlier gains against the US dollar from 18 February to 21 February. Instead, the AUD/USD recorded a decline of 1.3% from an intraday high of 0.6409 on 21 February to a current level of 0.6329 at this time of writing.
Risk-off in US stock indices and Trump’s incoming 25% trade tariffs on Canada
Fig 1: 3-month rolling performance of AUD/USD with major US stock indices as of 26 Feb 2025 (Source: TradingView, click to enlarge chart)
The Aussie dollar is considered a high-beta currency that has a higher sensitivity toward sentiment swings in the global stock market and commodities especially base metals as well as a direct correlation with other commodities proxy currencies such as the Canadian Loonie (CAD).
US President Trump has highlighted that the earlier planned 25% tariffs on Canadian exports to the US were scheduled to hit Canada on time next Tuesday after the “cooling off period” ends on 4 March.
Based on a five-day rolling performance basis, the Loonie (CAD) is the weakest major currency against the US dollar where it shed 0.6% at this time of the writing, and the Aussie dollar (AUD) trails behind with a loss of 0.2% against the US dollar.
Also, the lacklustre movements of the major US stock indices in the past month where the mega-cap and Artificial Intelligence (AI) centric S&P 500 and Nasdaq 100 have broken below their respective 50-day moving averages on Monday, 24 February, ignited a current risk-off sentiment behaviour that in turn triggered a negative feedback loop back into the Aussie dollar (see Fig 1).
Bearish technical elements remain intact on the AUD/JPY
Fig 2: AUD/JPY medium-term & major trends as of 26 Feb 2025 (Source: TradingView, click to enlarge chart)
In the lens of technical analysis and an intermarket study, the 11 July 2024 swing high area of 107.85/109.40 may be considered as a medium-term top for the AUD/JPY cross pair, and its current prices are evolving into a potential medium-term downtrend phase (multi-week) in the first step.
The daily MACD trend indicator has been trending downwards steadily since 14 October 2024. It broke below its centerline on 27 November 2024 and at this time of the writing, it has flashed out an impending MACD bearish crossover condition below the centerline.
These observations suggest that the downward movement seen on the AUD/JPY in place since the 7 November 2024 high may extend further to the downside as its medium-term bearish trend condition remains intact.
Intermarket analysis also advocates further potential weakness on the AUD/JPY as the yield spread between the 2-year Australian Government Bonds and Japanese Government Bonds (JGB) has continued to narrow since 31 October 2023 and it has staged a recent bearish breakdown below its previous 11 December 2024 swing low of 3.20%. Right now, the 2-year yield spread between the sovereign bonds of Australia and Japan is trading 20 bps lower at 3%.
Watch the major support of 93.65 defined by the lower boundary of the long-term secular ascending channel from the March 2020 low, and a break with a weekly close below 93.65 may trigger the start of a potential multi-week corrective decline sequence to expose the next medium-term supports at 90.14 and 87.00 in the first step (see Fig 2).
On the flip side, clearance above the 97.24 key medium-term pivotal resistance invalidates the bearish tone for a retest on the next medium-term resistance at 99.60 (also the 200-day moving average), and above it sees the next resistance coming in at 102.30 (7 November 2024 swing high).
